The original flat was inherited in 1999 and was 490 sq ft. It was surrendered in 2015 for redevelopment, and the owner received a larger 1121‑sq‑ft flat in 2025. In addition, a lump‑sum of Rs 55.06 lakh was paid as extra FSI compensation.
The owner and spouse each held a 50% share of the flat. The builder paid monthly rent until the new flat was delivered in 2025. The monthly rent is not taxable because it is a reimbursement of rent expenses.
The Rs 55.06 lakh received for the extra FSI is treated as a capital asset. Since the original flat was held for more than two years, this amount is taxed as a long‑term capital gain.
Under the Income Tax Act 2025, a taxpayer who receives a redeveloped flat in lieu of a surrendered flat can claim exemption from long‑term capital gains under Section 82. The exemption applies only if the new flat is not sold within three years.
If the new flat is sold within three years, the earlier exemption is reversed. The amount of long‑term capital gains that was exempted is added back to the taxable amount.
Because the new flat is being sold within 24 months, the difference between the sale price and the fair market value on the date of possession will be taxed as a short‑term capital gain.
The FSI compensation, when reversed, also becomes taxable as a long‑term capital gain in the year of sale. This amount must be added to the total taxable gain.
In summary, selling the redeveloped flat now will trigger both short‑term and long‑term capital gains taxes, depending on the holding period and the exemptions claimed earlier.
Taxpayers should consult a qualified tax advisor to determine the exact tax liability and to explore any available exemptions or deductions.